Russia Stocks Drop as Putin Critic Gets Five Years

A judge in Kirov, 900 kilometers northeast of Moscow, handed down the sentence after ruling that Alexey Navalny, seen here in May, defrauded Kirovles, a state-owned timber company, of 16 million rubles. Photographer: Andrey Rudakov/Bloomberg

July 18 (Bloomberg) -- Russian shares sank the most in a
month after a court sentenced Alexey Navalny, an opposition
leader who spearheaded the biggest protests against President
Vladimir Putin’s 13-year-rule, to prison.

The benchmark Micex Index declined as much as 2.1 percent
from its intraday peak today, reversing gains after the
decision. The gauge slid 1.1 percent to 1,416.63 by the close in
Moscow, the most since June 20. The volume of shares traded was
52 percent above the 30-day average, data compiled by Bloomberg
show, while 10-day price swings rose to 20.501, the most since
June 27.

A judge in Kirov, 900 kilometers (560 miles) northeast of
Moscow, handed down the five-year sentence after ruling that
Navalny defrauded Kirovles, a state-owned timber company, of 16
million rubles ($494,000). Russian equities trade at the
cheapest valuations based on estimated earnings among 21
emerging economies tracked by Bloomberg. The dollar-denominated
RTS Index retreated 1.1 percent to 1,377.35.

“Navalny is the best-known Russian opposition figure,”
Andrey Vashevnik, who manages $25 million as chief investment
officer at R&B Investment Fund Ltd., said by phone in Moscow.
“This signals that the government is erasing any political
competition and the country doesn’t comply with the rule of law,
which will push away investors.”

The Micex climbed as much as 0.5 percent earlier on
speculation U.S. stimulus will be maintained. Federal Reserve
Chairman Ben S. Bernanke said yesterday the central bank’s asset
purchases “are by no means on a preset course” and could be
reduced more quickly or expanded as economic conditions warrant.

The ruble weakened 0.2 percent to 32.4180 against the
dollar, snapping three days of gains. The yield on benchmark OFZ
bonds due February 2027 rose six basis points, or 0.06
percentage point, to 7.60 percent, their first advance in six
days.

Bonds and the ruble are less affected by the court’s
decision because currency and debt investors are guided by
Russia’s limited reliance on foreign funding and its current
account surplus, according to Nicholas Spiro, managing director
at Spiro Sovereign Strategy.

“Russia’s saving grace is that its external funding
position remains one of the strongest in the emerging-market
space,” he said in e-mailed comments from London.

Exposing Fraud

Russia is ranked the most corrupt nation among the Group of
20 advanced economies in Berlin-based Transparency
International’s 2012 Corruption Perceptions Index.

Navalny’s sentencing “shows once again that the Russian
government is centralized and it fights the opposition,”
Aleksei Belkin, who helps manage about $4.4 billion in assets as
chief investment officer at Kapital Asset Management LLC, said
in Moscow. “It reminds us about Russia’s political risks, which
make the market so volatile.”

Navalny, a lawyer and blogger who’s campaigned to expose
fraud and waste at state companies and corruption by officials,
is the most prominent opponent of Putin to face prison since
former Yukos Oil Co. owner Mikhail Khodorkovsky, once Russia’s
richest man. More than 10,000 people have signed up to attend a
rally against Navalny’s sentencing near the Kremlin today,
according to a Facebook Inc. page set up by the organizers.

“Although the Navalny news is negative, it was expected,
especially by the local players,” Alex Debelov, chief
investment officer at Moscow-based Third Rome LLC, which manages
about $400 million in Russian assets, said by e-mail. “This
will hardly help the privatization program, which already
doesn’t shine with achievements this year.”

Asset Sales

Revenue from asset sales will bring the budget about 630
billion rubles ($19 billion) in the next three years, including
about 180 billion rubles in 2014, Economy Minister Alexei
Ulyukayev said at a government meeting on June 27. That compares
with a planned 925.9 billion rubles written into the three-year
budget, according to the Economy Ministry.

Crude oil, Russia’s main export earner, advanced 0.5
percent to $106.98 a barrel in New York. Russia receives about
50 percent of its budget revenue from oil and natural gas sales.
Fewer Americans than forecast filed applications for
unemployment benefits in the week ended July 13, data showed
today.

Pharmstandard Buyback

OAO Pharmstandard, the country’s biggest drugmaker, fell
3.4 percent to 1,672.10 rubles. The company completed its
buyback program, acquiring an additional 1.3 billion rubles of
stock as of July 16. That raised the amount purchased since
February to 8 billion rubles and lifted its stake to 73 percent,
the company said in a statement yesterday.

Pharmstandard shares tumbled 34 percent from July 8 to July
11 after the company said it offered $630 million for Bever
Pharmaceutical Pte Ltd., without disclosing why, and announced
the spinoff of its own branded, non-prescription drugs business.
The shares plunged as much as 11 percent in London today before
trading down 4.8 percent at $12.27.

Relative Strength

The 14-day relative strength index on the Micex retreated
to 65 from 71 yesterday. The RSI measures how rapidly prices
have advanced or dropped during a specified time period.
Readings below 30 indicate a security may be poised to rise,
while those above 70 signal a potential drop.

Fourty-two stocks, or 84 percent, were trading above their
50-day moving average on the Micex yesterday. None closed at a
52-week low and one at a 52-week high, according to data
compiled by Bloomberg. The Russian Volatility Index, which
measures expected swings in RTS futures, rose 1.5 percent today.
The Bloomberg Russia-US Equity Index of the most-traded Russian
companies in the U.S. fell 1.3 percent to 92.13.

The Micex trades at 5.3 times its 12-month estimated
earnings, compared with a multiple of 10 for the MSCI Emerging
Markets Index.